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Price transparency in OTC equity lending markets: Evidence from a loan fee benchmark

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  • Cereda, Fábio
  • Chague, Fernando
  • De-Losso, Rodrigo
  • Genaro, Alan
  • Giovannetti, Bruno

Abstract

We study the effects of a price transparency shock in the Brazilian equity lending market, an over-the-counter market. Previously, the available loan fee benchmark was the mean loan fee of the past 15 trading days. On March 1, 2011, this interval was reduced to three days, significantly improving short-sellers’ ability to predict current loan fees. We find that after the benchmark change, loan fees fell, lending volume increased, total lending revenue remained stable, high-cost lenders lost market share, and price efficiency increased. Our results suggest implementing price benchmarks in OTC markets can improve market quality.

Suggested Citation

  • Cereda, Fábio & Chague, Fernando & De-Losso, Rodrigo & Genaro, Alan & Giovannetti, Bruno, 2022. "Price transparency in OTC equity lending markets: Evidence from a loan fee benchmark," Journal of Financial Economics, Elsevier, vol. 143(1), pages 569-592.
    • Handle: RePEc:eee:jfinec:v:143:y:2022:i:1:p:569-592
    DOI: 10.1016/j.jfineco.2021.05.033
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    More about this item

    Keywords

    Price transparency; OTC markets; Benchmarks; Equity lending; Search costs;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other

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